China’s central bank, the People’s Bank of China (PBOC), decided to leave its benchmark lending rates unchanged in February, reflecting its cautious approach toward monetary stimulus. The one-year loan prime rate (LPR) remained at 3.10%, while the five-year LPR was kept steady at 3.60%. This move comes as authorities prioritize financial and currency stability over aggressive economic support, especially given the pressure from a weakening yuan and narrowing interest margins at commercial banks.
Market analysts were not surprised by the decision, with all 30 participants in a Reuters poll predicting no changes to the rates. Despite a strong surge in new loans in January, totaling 5.13 trillion yuan ($704.35 billion), far surpassing December’s figures, credit demand remains sluggish. The year-on-year growth in lending has hit a record low, highlighting ongoing economic uncertainty that limits the effectiveness of monetary easing.
China’s yuan has experienced a notable depreciation of 2.4% against the dollar since Donald Trump’s election victory in November. The continuing volatility in the currency market, alongside growing trade tensions with the United States, presents significant challenges for Beijing. These tensions, particularly the threat of new tariffs under President Trump’s administration, are pushing China to carefully manage its monetary policy to avoid exacerbating the situation.
Despite these external pressures, experts suggest that the PBOC may opt to adjust deposit rates lower and bolster bank capital to ease the pressure on commercial banks’ net interest margins. However, any shift in monetary policy will likely remain cautious, with the central bank aiming to maintain its policy stance even in the face of fluctuating yuan values and external economic headwinds.
SOURCE: REUTERS